Defense firms fall as Democratic victory stokes fears of tighter Pentagon budget
XLI•U.S. defense shares fell after Democrats' midterm election victory raised concerns about pressure on Pentagon spending. Lockheed Martin fell 6.5%, RTX declined more than 4%, and L3Harris dropped nearly 8% in morning trading.
1. Defense shares decline
Lockheed Martin shares fell 6.5%, RTX declined more than 4%, and L3Harris Technologies fell nearly 8% in morning trading on Wednesday. General Dynamics and Northrop Grumman also fell 3% to 5%.
2. Budget outlook in focus
The sector has benefited from President Donald Trump's call for a $1.5 trillion military budget in 2027, compared with the currently approved $901 billion. Analysts said a Democratic-led House could scrutinize budgets and new programs more closely; Jefferies analysts expect the 2027 budget to be closer to the House's roughly $1.15 trillion proposal. After upbeat October results and record backlogs, defense stocks have given up much of their gains. The S&P 500 Aerospace & Defense sub-index is down nearly 1% this year, and the Dow Jones U.S. Aerospace & Defense sub-index is down 3.4%.
